Correlation Between LG Chemicals and Solution Advanced

Can any of the company-specific risk be diversified away by investing in both LG Chemicals and Solution Advanced at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining LG Chemicals and Solution Advanced into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between LG Chemicals and Solution Advanced Technology, you can compare the effects of market volatilities on LG Chemicals and Solution Advanced and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in LG Chemicals with a short position of Solution Advanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Chemicals and Solution Advanced.

Diversification Opportunities for LG Chemicals and Solution Advanced

0.62

Correlation Coefficient

LG Chemicals  Solution Advanced

Poor diversification

The 3 months correlation between 051910 and Solution is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding LG Chemicals and Solution Advanced Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solution Advanced and LG Chemicals is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on LG Chemicals are associated (or correlated) with Solution Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solution Advanced has no effect on the direction of LG Chemicals i.e., LG Chemicals and Solution Advanced go up and down completely randomly.

Pair Corralation between LG Chemicals and Solution Advanced

Assuming the 90 days trading horizon LG Chemicals is expected to under-perform the Solution Advanced. But the stock apears to be less risky and, when comparing its historical volatility, LG Chemicals is 1.15 times less risky than Solution Advanced. The stock trades about -0.11 of its potential returns per unit of risk. The Solution Advanced Technology is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  147,000  in Solution Advanced Technology on September 1, 2024 and sell it today you would earn a total of  7,200  from holding Solution Advanced Technology or generate 4.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

LG Chemicals  vs.  Solution Advanced Technology

LG Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LG Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Solution Advanced

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Solution Advanced Technology are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Solution Advanced may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with LG Chemicals and Solution Advanced

The main advantage of trading using opposite LG Chemicals and Solution Advanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LG Chemicals position performs unexpectedly, Solution Advanced can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Solution Advanced will offset losses from the drop in Solution Advanced's long position.

The idea behind LG Chemicals and Solution Advanced Technology pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Valuation module to check real value of public entities based on technical and fundamental data.